Reserves

The governing concept is net adjustment of accumulated balances in the old ratio. General Reserve is a credit balance of ₹180,000, while the Profit and Loss debit balance of ₹60,000 reduces it. Thus, net accumulated profit = ₹180,000 − ₹60,000 = ₹120,000. The third partner’s old-ratio share is 5/(3+4+5) = 5/12. His net credit is therefore ₹120,000 × 5/12 = ₹50,000. Option A is correct. ₹120,000 is the total net profit, ₹75,000 does not use the third partner’s fraction, and ₹25,000 is not supported by the given balances or ratio.

After adjusting the insurance claim against the Insurance Reserve, the balance is ₹68,000 − ₹26,000 = ₹42,000. The second partner’s share is \(\frac{5}{2+5}=\frac{5}{7}\) of this balance. Therefore, the amount received is ₹42,000 × \(\frac{5}{7}\) = ₹30,000. ₹42,000 is the total balance, not the second partner’s share. Exam tip: First deduct the claim from the reserve, then apply the concerned partner’s share of the old ratio.

The Insurance Reserve can absorb ₹44,000 of the claim. Since the total claim is ₹62,000, the shortfall is ₹18,000 (₹62,000 − ₹44,000). This excess claim is debited to the Revaluation Account as a loss and is ultimately borne by the old partners in their old profit-sharing ratio. Hence, option A is correct. Option B is incorrect because the difference represents a loss, not an accumulated profit. Exam tip: When a claim exceeds the related reserve, transfer only the excess to the Revaluation Account as a loss.

The General Reserve of ₹95,000 represents accumulated profit, whereas the debit balance of the Profit and Loss Account of ₹1,10,000 represents accumulated loss. Therefore, the net accumulated loss is ₹1,10,000 − ₹95,000 = ₹15,000. This loss is adjusted among the old partners in their old profit-sharing ratio before the new partner is admitted. Exam tip: treat the reserve as a credit balance and the debit balance as a loss, then determine the net effect.

A reserve fund and the investment held against it are related in amount but different in accounting nature. The reserve fund is an accumulated appropriation of profit belonging to the old partners, while the separate investment is an asset owned by the firm. On reconstitution, the reserve is distributed or adjusted among the old partners, normally in their old profit-sharing ratio, and the investment continues to appear as an asset unless the partners specifically decide otherwise. Therefore choice A is correct.

The investment is not itself a loss, and it is not automatically transferred to the incoming partner. A reserve cannot be converted into a bank loan merely because a separate investment exists. Keeping the reserve adjustment separate from the investment asset prevents the two different accounting items from being confused.

The reserve was earned before any change in the partnership, so the first partner should receive it in the old ratio 4:1. Out of ₹90,000, the first partner’s proper share is ₹90,000 × 4/5 = ₹72,000. However, the question says that the reserve was distributed in the capital ratio 7:8. Under that ratio, the first partner receives ₹90,000 × 7/15 = ₹42,000.

The shortfall is ₹72,000 − ₹42,000 = ₹30,000. Thus the first partner received ₹30,000 less than the amount due under the old ratio. The other options either reverse the direction or give an incorrect numerical difference. Hence option A is supported.

The governing concept is that the distributable portions of reserves existing before admission belong to the old partners and are transferred in their old profit-sharing ratio. Add the two available balances: General Reserve ₹99,000 + distributable Workmen Compensation Reserve ₹27,000 = ₹126,000. The first partner’s share under the ratio 5:4 is 5/(5+4) = 5/9. Therefore, his total credit is ₹126,000 × 5/9 = ₹70,000. Option A is correct. ₹126,000 is the combined amount before distribution, ₹56,000 is the second partner’s share, and ₹27,000 is only one component of the total.

The Investment Fluctuation Reserve has a credit balance of ₹44,000 and is distributed among the old partners. The un written Preliminary Expenses of ₹11,000 must be written off as a debit. Therefore, the net gain is ₹44,000 − ₹11,000 = ₹33,000. The second partner’s share under the old ratio is \(\frac{5}{11}\): ₹33,000 × \(\frac{5}{11}\) = ₹15,000. Hence, the second partner’s capital account will be credited by ₹15,000. Exam tip: First calculate the net effect of all adjustments, then distribute it in the old profit-sharing ratio.

When there is no claim a specific reserve is treated like accumulated profit. Therefore it is shared among old partners in old ratio.

Balance after claim is old accumulated profit. Therefore it is distributed among old partners in old ratio.

Excess claim is an additional pre-admission liability. Therefore it may be shown as revaluation loss.

General Reserve represents profits accumulated before the new partner’s admission. Therefore, it is distributed only among the old partners in their old profit-sharing ratio, and the new partner receives nothing from it. ₹25,000 is obtained by calculating 1/6 of ₹1,50,000, but the new partner’s ratio cannot be applied retrospectively to an old reserve. Exam tip: On admission, existing reserves and accumulated profits are credited only to the old partners’ capital or current accounts.

The debit balance of ₹72,000 represents an accumulated loss arising before the new partner’s admission. Therefore, it is borne only by the old partners in their old profit-sharing ratio; the new partner has no share in it. Hence, the correct answer is zero. Exam tip: A new partner does not share in accumulated profits or losses of the past unless a specific adjustment is stated.

After adjusting the accumulated loss against the accumulated profit, the net accumulated profit is ₹2,00,000 − ₹80,000 = ₹1,20,000. This amount is distributed among the old partners in their old profit-sharing ratio. B’s share is 3/(6+3+1) = 3/10, so B’s account is credited with ₹1,20,000 × 3/10 = ₹36,000. ₹1,20,000 is the total net amount, not B’s individual share. Exam tip: For distributing reserves or accumulated profits and losses on admission, use the old profit-sharing ratio.

Under fixed capital method profit or loss adjustments are made in current accounts. In exams always check the capital method.

Old profits and losses belong before the new partner joins. Therefore their effect goes to old partners in old ratio.